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In the summer of 1967 Warren described the progress of Hochschild-Kohn as highly satisfactory. Ironically, considering its future success, in the same letter, he was quite depressed about Berkshire Hathaway.
In January 1968 Warren stated he was enjoying working with the leaders of companies that the Partnership controlled, and that he was determined to keep a substantial proportion of the Partnership’s money in companies where he has control of all or the majority of the shares, even if that meant a reduction in his annual return target:
“The satisfying nature of our activity in controlled companies is a minor reason for the moderated investment objectives discussed in the October 9th letter [changed from 10 percentage points over the Dow to the lesser of 9% pa or a five percentage point advantage over the Dow ].
When I am dealing with people I like, in businesses I find stimulating (what business isn’t?), and achieving worthwhile overall returns on capital employed (say, 10-12%), it seems foolish to rush from situation to situation to earn a few more percentage points.
It also does not seem sensible to me to trade known pleasant personal relationships with high grade people, at a decent rate of return, for possible irritation, aggravation or worse at potentially higher returns.
Hence, we will continue to keep a portion of our capital (but not over 40% because of the possible liquidity requirements arising from the nature of our partnership agreement) invested in controlled operating businesses at an expected rate of return below that inherent in an aggressive stock market operation” (1967 letter to partners)
Despite this general approach, Warren left HK out of the list of praiseworthy performances: National Indemnity and Associated Cotton Shops (I’ll discuss in a Newsletter next week) were picked out for honour, but the BH textile business and HK were not…..
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